BlackRock Asks Slovenia Bad-Bank Details Before Debt Sale

Prime Minister Alenka Bratusek, whose Cabinet has pledged to push forward with the previous government’s bad-bank project which involved moving as much as 4 billion euros of nonperforming debt out of lenders, has also said that it wants to sell state assets, including a bank, to calm concerns over the country’s rising debt levels. Photographer: Jure Makovec/AFP/Getty Images

April 30 (Bloomberg) -- BlackRock Inc., the world’s biggest
investor, is asking Slovenia to provide details of a project to
rescue banks as the government delayed pricing of its first
long-term debt this year and Moody’s Investors Service lowered
the country to junk.

The nation needs to recapitalize its ailing banking
industry with as much as 1 billion euros ($1.3 billion) and fund
the budget as the government works out details of a so-called
bad bank plan to restructure the industry. The country is
grappling with its second recession since 2009, with the export-driven economy forecast to contract again this year, according
to a Bloomberg survey.

“We need to see the size of the assets that actually will
be transferred,” Christopher Allen, a London-based
director at BlackRock’s Fundamental Euro Fixed Income team, said
yesterday. “We have to understand whether the valuations of those
loans are really realistic.”

Moody’s cut Slovenia’s debt rating two steps to Ba1, the
highest non-investment grade ranking, citing the ongoing
turmoil in the country’s banking system and the “high
likelihood” that the sovereign will be required to provide
further assistance and capital injections.

Pricing for dollar-denominated bonds was delayed due to a
possible credit rating action, the Finance Ministry said in an
e-mailed statement before the downgrade. Slovenia “expects the
transaction to continue once additional information is
available,” it said.

Bond Offering

The yield on the government’s existing dollar note due 2022
rose two basis points to 5.66 percent at 7:10 p.m. in Ljubljana.
The rate on the notes sold in October peaked at 6.38 percent on
March 27 as investors speculated Slovenia will be the next euro
country to seek an international bailout after Cyprus.

The cost to protect Slovenia’s government debt against
default using credit-default swaps was little changed at 290
basis points today, according to data compiled by Bloomberg.

Investors often ignore ratings, evidenced by the rally in
Treasuries after the U.S. lost its top grade at Standard &
Poor’s in 2011.

Slovenia was offering five-year and 10-year dollar bonds
today, said a person familiar with the matter earlier today who
asked not to be identified before the transaction is completed.
The five-year notes were being initially offered in the 5
percent area and the longer-maturity debt around 6.125 percent,
the person said.

BNP Paribas SA, Deutsche Bank AG and JPMorgan Chase & Co.
are arranging the deal after they gauged appetite for a bond
sale with a roadshow that ended in London yesterday, the Finance
Ministry said in an e-mailed statement.

Bank Project

Prime Minister Alenka Bratusek, whose Cabinet has pledged
to push forward with the previous government’s bad-bank project
which involved moving as much as 4 billion euros of
nonperforming debt out of lenders, has also said that it wants
to sell state assets, including a bank, to calm concerns over
the country’s rising debt levels.

“Despite the headlines from the new government broadly
stating their commitment, we still need the details, hopefully
ahead of proceeding with any bond sale,” Allen said in an
interview yesterday.

Adrian Russell, a London-based spokesman at BlackRock,
declined further comment on the deal today.

Public Debt

Public debt, which was at 54 percent of gross domestic
product last year, may rise to about 75 percent after the
recapitalization of the banking sector, he said. That compared
with the average 90.6 percent debt to GDP ratio for the euro
area, according to Eurostat data.

“There are no major imbalances in Slovenia apart from the
banking sector,” said Allen. The public debt ratios are
“affordable by any means,” he said.

Slovenia’s economy will probably shrink 1.9 percent this
year, according to the median of seven estimates in a Bloomberg
survey of analysts. Gross domestic product contracted 2.3
percent last year as demand for its goods in Europe ebbed and
consumption dropped because of government austerity.